Capital Gains Tax Reporting

Client did not report disposal of property sold in Nov 2020

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We are in the process of preparing a clients tax return and rental accounts, when we noticed that the client sold his rental property in Nov 2020.

The client had not made us aware of this disposal nor was he aware that he was required to report the capital gain/(loss) to HMRC and pay over any CGT to HMRC within 30 days.

We have made the client aware of him having missed the deadline and trying to rectify the situation.

However, I was going to complete his tax return and get him to pay the tax by 31 January 2022, but what about the CGT UK Property Disposal Return which should have been filed in December 2020?

I am worried that we will send the CGT Property Disposal Return and the client will get another demand for the CGT due, whilst already having paid the tax on 31 Jan 2022!

We all know that the various tax departments don't talk to each other and it will become a nightmare to explain and sort out that tax has already been paid.

Any ideas on how to deal with this situation?

Thanks

 

Replies (5)

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By pauld
25th Jan 2022 14:20

I think strictly you will need to file the disposal return as well as including it on the tax return. Penalties are issued for late disposal returns, £100 if not within the 30/60 day timescale. £300 or 5% of tax due (whichever greater) if 6 months late and further £300 or 5% after 12 months. I wonder if anyone is aware of penalties being issued for late returns?

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Replying to pauld:
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By Joe Alderson
25th Jan 2022 15:43

You are correct, but in practice I've only found penalties to be charged once the disposal return has been filed late, not when no disposal return was ever completed in the first place, even where the property disposal has gone on to be included on the tax return.

Not the same scenario but we came across one situation where the client overpaid CGT on the disposal return due to overestimating their income for the remainder of the year, on filing the return the client did not receive the overpayment back, no acknowledgement of it, nothing. It was a bit of an ordeal (as most things are these days) to get it back from HMRC.

The property disposal return and software behind it really aren't fit for purpose at the moment. But why wait to make something fit for purpose when you can make it mandatory to use in a broken unfinished state and see what happens.

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Replying to Joe Alderson:
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By More unearned luck
25th Jan 2022 17:50

"You are correct, but in practice I've only found penalties to be charged once the disposal return has been filed late, not when no disposal return was ever completed in the first place, even where the property disposal has gone on to be included on the tax return."

You speak too soon.
1. It's the early days of the extension of the scheme to UK residents: 2021 returns (the first year of the scheme) are still being filed daily. So, it too soon to data mine the 2020/21 database for cases of tax on residential property gains not reduced by tax already paid
2. HMRC are very busy policing wrongly claimed coronavirus support grants; they have little choice but to put the above exercise on the back burner, in any event.
3. In the case of HICBC, HMRC waited about two or three years before undertaking a data mining exercise of people with income over £50K living in households where there was a CB claimant.

Your clients could yet face penalties of 100% of the tax for failure to notify, as well as late filing and payment penalties. You may wish to revisit your advice to your clients not to make CGT returns. They may get mitigating brownie points.

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Replying to More unearned luck:
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By More unearned luck
25th Jan 2022 18:00

PCRT
sch 38 FA12

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Scooby
By gainsborough
25th Jan 2022 16:25

There was a very thorough and interesting previous thread on this (see Richard Thomas's analysis 18th Oct 22.34) - https://www.accountingweb.co.uk/any-answers/missed-cgt-report

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